U.S. government bonds on pace for weekly and monthly gains

DeborahLevine

SAN FRANCISCO (MarketWatch) — Bond investors are availing themselves of the rather mild rally in Treasury prices to buy more corporate bonds, and companies continue to be willing to issue debt to satiate them.

“There’s been a continued appetite for anything with a little additional yield,” said Lon Erickson, a bond portfolio manager at Thornburg Investment Management. Companies are taking the opportunity to “feed the beast in terms of investor appetite.”

Clock’s ticking down on ‘fiscal cliff’

(22:49)

GOP Whip Kevin McCarthy says some Democrats and Republicans are happy to see the U.S. go over the fiscal cliff.

Companies sold $148 billion in November, the most prolific month this year and the busiest November on record, according to the firm.

Companies have been issuing debt to finance mergers and acquisitions, retire debt, fund special-dividend declarations or just to add to their already-massive stockpiles of cash, which is often labeled as for general corporate purposes in regulatory filings.

“We could continue to see a constant flow of issuance later into the year than usual,” said Ken Jaques, analyst at Informa Global Markets. “Corporations can ill afford to pass up the opportunity to borrow at such attractive rates before the uncertainty of 2013 is upon us.”

Companies have raised a “staggering” $1.19 trillion this year, up nearly 24% from last year, according to Jaques.

One of the biggest factors underlying this is simply that investors want more corporate bonds, so fund managers are looking for securities to buy.

Investment-grade mutual funds received inflows of $916 million in the week ended Nov. 28, according to RBS Securities. For the year to date, investors have shifted $63.1 billion into the asset class.

“Many investment-grade issuers took advantage of the positive market backdrop yesterday hoping to lock in low rates while avoiding the imminent fiscal cliff,” RBS analysts led by Edward Marrinan wrote in a note.

Riskier, high-yield bond funds aren’t far behind, though some investors lately have been booking profits in the sector and easing back. High-yield funds took in $264 million in the latest week, according to RBS, adding to the year’s $20.7 billion inflows.

Overall, corporate bond returns have been slightly negative this month, according to an index compiled by Bank of America Merrill Lynch. For the year, the sector has returned more than 10%.

High-yields bonds are up 0.6% so far this month, according to a separate index. For the year, junk bonds have returned more than 13% — topping the S&P 500 Index
SPX, -0.23%

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